Interim Report Meeting the Financing Needs of Opportunity Neighborhoods in Ohio: The Credit Gaps Landscape and the Role of Community Development Financial Institutions Greater Ohio Policy Center March 2016 1 Table of Contents EXECUTIVE SUMMARY ........................................................................................................................................... 4 I. INTRODUCTION ............................................................................................................................................ 6 BACKGROUND AND METHODOLOGY .................................................................................................................................. 9 II. CREDIT AND CAPACITY: UNDERSTANDING THE CHALLENGES, THE PLAYERS AND THE TOOLS. .................... 11 A. DEFINING THE CHALLENGE: AN OVERVIEW ................................................................................................. 11 B. WHO ARE THE CUSTOMERS FOR CREDIT? ................................................................................................... 13 Table 1: Menu: Development activity, customer, and credit needs ..................................................................... 13 1) Homeowners ............................................................................................................................................. 14 2) Landlords .................................................................................................................................................. 14 3) Developers and contractors ...................................................................................................................... 15 4) Small Business Operators ......................................................................................................................... 15 5) Commercial Property Owners ................................................................................................................... 15 6) Community-Serving Facilities .................................................................................................................... 15 C. CREDIT AND CAPACITY CHALLENGES AND TOOLS ....................................................................................... 16 Table 2: Goals and challenges .............................................................................................................................. 17 1) Goal: Increase Stable Home Ownership.................................................................................................... 17 Table 3: Increasing Stable Home Ownership – Challenges, Tools, and Examples ................................................ 18 Challenges: ...................................................................................................................................................................... 18 Expanding the pool of potential homebuyers and increasing access to mortgage capital ............................. 18 Sustaining existing homeowners ..................................................................................................................... 19 Tools: ............................................................................................................................................................................... 19 Direct lending programs .................................................................................................................................. 19 Mortgage Credit Enhancements ..................................................................................................................... 20 Rehabilitation loan programs .......................................................................................................................... 21 Home improvement loan programs ................................................................................................................ 21 Equity protection programs ............................................................................................................................ 22 Foreclosure prevention programs ................................................................................................................... 22 2) Goal: Remove Blight by Reusing Vacant Properties and Upgrading Substandard Properties ....................... 23 Table 4: Reusing Vacant Properties and Upgrading Substandard Properties – Challenges and Tools ................. 23 Challenges: ...................................................................................................................................................................... 23 Getting owners to restore their properties to productive use ........................................................................ 23 Encouraging buyers to buy and restore vacant or substandard homes .......................................................... 24 Tools: ............................................................................................................................................................................... 25 Incentives for homebuyers and investors ....................................................................................................... 25 Building Construction & Rehabilitation Capacity ............................................................................................ 26 3) Goal: Maintain a Stable Rental Sector ...................................................................................................... 28 Table 5: Maintaining a Stable Rental Sector – Challenges and Tools, .................................................................. 28 Challenges: ...................................................................................................................................................................... 28 Upgrading the quality of rental housing.......................................................................................................... 28 Supporting responsible long-term landlord activity ........................................................................................ 29 Tools: ............................................................................................................................................................................... 29 Financing tools for landlords – property acquisition, improvement and refinancing ..................................... 29 Integrating financing into rental property regulation ..................................................................................... 30 4) Goal: Foster Business Growth ................................................................................................................... 30 Table 8: Fostering Business Growth – Challenges, Tools, and Examples .............................................................. 31 2 Challenges: ...................................................................................................................................................................... 31 Encouraging rehab/upgrading of commercial properties ............................................................................... 31 Fostering creation and growth of small and community-supporting businesses, ........................................... 31 Tools: ............................................................................................................................................................................... 31 Financing resources for owners/rehabbers of commercial properties ........................................................... 31 III. FILLING THE GAPS: BUILDING A STRONGER ROLE FOR CDFIS AND OTHER PLAYERS .................................... 34 A) CHALLENGES FACING CDFIS ................................................................................................................................. 34 B) RECOMMENDATIONS .......................................................................................................................................... 36 IV. NEXT STEPS ..................................................................................................................................................... 41 ACKNOWLEDGEMENTS ........................................................................................................................................ 43 APPENDIX A ......................................................................................................................................................... 44 METHODOLOGY: DEFINING AND IDENTIFYING OPPORTUNITY NEIGHBORHOODS ....................................................................... 44 Background ........................................................................................................................................................ 44 Screening Process for Identifying Opportunity Neighborhoods ......................................................................... 45 Table 1: Summary of Indicators Used During the Screening Process ................................................................... 46 Screen 1 .......................................................................................................................................................................... 46 Screen 2 .......................................................................................................................................................................... 47 Screen 3 .........................................................................................................................................................................